BoJ preview:BoJ to stay on hold with data and market movements mixed since the previous monetary policy meeting

The BoJ will hold a Monetary Policy Meeting (MPM) on 18-19 November. Although it lowered its real growth and CPI forecasts at the previous meeting (30 October), it decided to leave its monetary policy framework unchanged. Since that meeting, economic data and market movements have been mixed, showing both positive and negative factors, so additional easing is not urgently needed. Economists forecast the BoJ will leave its policy framework unchanged again.

The probability 3Q real growth will be zero or slightly negative has increased, and there are some signs that household expectations of inflation are declining. These factors raise the possibility of additional easing.

Among the items that will make up 3Q GDP statistics (16 November), those depending on household expenditure, such as consumption and housing, have firmed up, but inventory reductions will make a negative contribution to GDP, leaving the growth rate around zero (the current market consensus is a negative 0.3% QoQ annualized). Data on 3Q industrial production and shipments suggest production declined more than shipments, which lowered inventory. In GDP statistics, four items comprise inventories: finished goods, work in process, raw materials, and distribution inventories.

"The inventories in industrial production statistics correspond only to finished goods, so we cannot make a conclusive judgment, but if inventories are greatly reduced in 3Q, the possibility of negative GDP growth cannot be ruled out. It appears the economy did not clearly rebound in 3Q after the negative growth recorded in 2Q (-0.3% QoQ, -1.2% annualized)", says BofA Merrill Lynch.